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Both houses scrambling to revive banking reform bills.

The political difficulty of passing broad banking reform legislation in a time of rising bank failures, mega-bank mergers, and economic hard times in the shadow of the ever escalating cost of the S&L bailout was demonstrated last week.

Following days of debate and after turning back two attempts to have the bill referred back to committee the House defeated bank reform, 324 to 89. The Senate banking bill, which had been scheduled for a vote last Tuesday evening, was dropped from the agenda. These two setbacks raise serious questions of whether any banking bill will be passed this year.

Pushed by the urgency to provide a cash transfusion to the hemorrhaging federal bank insurance fund (which insures deposits in the event of a bank failure), and by a scheduled adjournment date only a couple of weeks away, both the House and Senate are scrambling to regroup.

House Prospects

Following defeat of the proposed House banking bill on Monday Nov 4, the House Banking Committee on Wednesday, November 6 voted to send back one sixth of their original bill to the House floor. The part at which they want the House to take a second try, is that part dealing with cash replenishment of the federal bank insurance fund and tighter supervision and accounting standards for banks. The vote to send the abbreviated bill back to the full House of Representatives was on a vote of 37-15.

Despite objections from some committee members, the Banking Committee surrendered to the House Rules Committee by allowing them Rules group to decide what non-controversial parts of the previous legislation to allow as amendments rather than trying to decide themselves what portions might be included as part of the revised bill.

The Rules Committee, chaired by Rep. Joe Moakley (D-Ma.) serves as the gatekeeper of the House in defining the items which will be allowed to be debated on the House floor.

Ranking Republican on the Banking Committee, Chalmers Wylie (R-Ohio) indicated his interest is seeing some elements from other portions of the bill included as possible amendments. An interstate banking and branching section of the bill (with permission for states to elect out for three years) might be one such section. of particular interest to cities are two proposals by Rep Barney Frank (D-Mass) included in the original bill which may be allowed as amendments by the Rules Committee--one to establish an affordable housing disposition program for bank foreclosed properties similar to the one already in existence for the S&L bail-out and two, the other an amendment to continue federal pass-through deposit insurance coverage for funds held for municipal employees in deferred compensation plans (457 plans).

The cash transfusion authorized in the bill for the federal deposit insurance fund is $70 billion: consisting of a $25 billion increase (from the existing $5 billion to a new total of $30 billion) in the fund's line of credit with the Treasury Department and $45 billion for working capital.

The line of credit is to be repaid through higher premiums charged to banks based on their deposits with the working capital assumed to be paid off with proceeds from the sale of assets of closed banks. According to some reports the fund currently has only $2.5 billion in cash.

A number of banking authorities have argued that delay in granting the borrowing authority will simply encourage bank regulators to delay the day of reckoning for already failing institutions thereby increasing the ultimate costs.

Commentators have said that the size of this bail-out on the heels of the $80 billion already authorized for the Savings and Loans and the additional $80 billion requested for the Savings and Loans is making all members of the Congress extremely reluctant to approve any more money which ultimately could become a taxpayer responsibility.

Senate Action

Senate Banking Chair don Riegle (D-Mich) pulled consideration of the Senate Banking Committee's bank legislation, S543, last week following the overwhelming defeat of the House measure. While being urged by some to offer a narrow proposal such as the revised House Banking measure, Reigle at this point is expected to offer a broader bill similar to that approved by his Committee.

In other banking action, the Senate Banking Committee on a party line vote refused to recommend Robert Clarke, Controller of the Currency, and one of the three top federal banking regulators to another term.

During the ten month long confirmation process on reappointment, some of Clarke's personal financial dealings had been criticized as well as the number of bank failures which occurred during his term. While Reigle critized Clarke for allowing lax accounting at Texas banks and for poor enforcement of anti-discrimination in lending laws, Bush Treasury Secretary Nicholas Brady termed Clarke's rejection, "crass politics and partisanship at its worst."

The Defeated House Bill

During their lengthy consideration of the defeated bank bill the House did take some actions indicating some interest in community reinvestment concerns of cities. Specifically the affordable housing disposition program offered by Rep Frank (D-Mass.) was approved as part of a package of non-controversial amendments accepted by both parties and thereby added to the proposal without a vote. An amendment offered by Rep Neal (D-Mass.) requiring increased reporting of small business loans by banks was also approved.

A clarifying amendment offered by Rep Ridge (R-Pa.) to clarify his green-lining amendment which would grant banks a reduction in their deposit premiums to the extent that they increased lending in distressed communities was also accepted without a vote. An amendment by Rep Gradison (R-Ohio) which sought to have the Ridge amendment struck because of its budgetary impact was defeated by a one vote margin 205-204.

The Kennedy (D-Mass.) amendment to require banks which are allowed to buy or branch into another state to demonstrate that they have been meeting credit needs in the communities that they currently serve and to require bank regulators to establish testing systems to detect violations of fair lending and community reinvestment laws was defeated 241 to 152. The use of testers as proposed in the Kennedy amendment, designed as a method to move forcefully to address the disparate rate of loan rejection to minorities pointed out by recent federal studies, was the provision which raised the most comment during debate.

Rep Jim Leach (R-Iowa) while complementing Kennedy on raising a documented issue said that the tester solution proposed by Kennedy is, "more KGB than American modeled." Leach, however, continued and suggested that 80 percent of home mortgage originations are going through the secondary market through two government sponsored institutions: Fannie Mae and Freddie Mac and that these powerful forces in the home lending market are not subject to CRA (Community Reinvestment Act), Fair Housing Act or the Equal Credit Opportunity Act. Kennedy responded that attempts to include them had been unsuccessful within the Banking Committee in the past.

In the field of deposit insurance, the House turned back attempts to scale back on the amount of deposit insurance coverage at the same time it rejected separate amendments by Banking Chair Henry B. Gonzalez (D-Tex.) and Rep. Floyd Flake (D-NY) which would have expanded deposit insurance protection for 501(c)3, charitable not-for-profit organizations. No general provisions were offered to expand deposit insurance protection.
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Author:Peterson, Doug
Publication:Nation's Cities Weekly
Date:Nov 11, 1991
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